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Question1 (2 marks)

The table below presents the utility schedule for the consumption of burgers and soft drinks.

MU (MU/P) MU (MU/P)
Quantity
Quantity (Soft
(Burgers) TU drink) TU
0 0 0 0
1 25 1 20
2 37 2 28
3 47 3 35
4 55 4 41
5 61 5 45
6 63 6 45

a) Calculate the marginal utility for both products and discuss whether the consumer follow the
Law of diminishing marginal utility.

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b) If the consumer has $13 with him, find the optimum combination of both products by
applying the law of equal marginal utility. Price of burger=$2, Price of soft drink= $1.

Question 2 (2 marks)
a) The following tables gives you the cost schedule for a firm producing sugar. Calculate the
average costs and the marginal cost and complete the cost schedule.
Output(tons) FC($) VC($) TC($) AFC($) AVC($) ATC($) MC($)
250 200 450
300 200 500
350 200 570
400 200 660
450 200 780

b) Draw the typical shapes of the average costs (AFC,AVC, ATC) and MC.

c) Explain the relationship between Marginal cost and Average total cost.

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Question 3 (4 marks)
A dairy farm faces a perfectly competitive market. It sells milk at $6 per liter. Complete the
table below to answer the following questions.
Quantity of Total Marginal Total Marginal ATC VC AVC
output revenue revenue cost cost
(liter)
0 3
1 5
2 8
3 12
4 17
5 23
6 30
7 38
8 47

a) Find the quantity of output that maximizes the profit for the firm. Also calculate the profit
at that level.

b) Find out the break-even quantity for the firm.

c) Find out the shutdown point for the firm.

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Question 4 (2 marks)

The following table represents the production schedule for a monopoly firm. Calculate the
marginal cost and marginal revenue.

Output Price($) Total Total cost Marginal cost Marginal

Revenue Revenue
(TC) (MC)
(TR) (MR)

1 700 400
2 600 650
3 500 950
4 400 1350
5 300 1780
a) Find the profit maximizing output. Calculate the profit at that level. Justify your answer.